Oil rises as OPEC+ talks continue in hunt for production deal

By Alex Longley and Tsuyoshi Inajima on 12/7/2018

LONDON and TOKYO (Bloomberg) -- Oil traded above $51/bbl as OPEC entered a second day of talks in an attempt to draw up a deal to cut output.

Russian Energy Minister Alexander Novak met with his Iranian and Saudi counterparts in Vienna in an attempt to broker a deal as an agreement among OPEC members to curb output remained elusive. Iran is said to be insisting on an exemption from any reductions. Saudi Energy Minister Khalid Al-Falih said Thursday that he isn’t confident an agreement will emerge in meetings with allies on Friday.

“The reason for the market taking this bullishly is because Novak is the negotiator,” said SEB chief commodities analyst Bjarne Schieldrop. “Novak is positive to a deal in general.”

Oil has plunged more than 30% from a four-year high in October as concern over oversupply was fueled by sanctions waivers given for some buyers of Iranian oil and growing American crude inventories and production. OPEC is discussing a proposal that would see the group reduce output by 650,000 bpd, with a further 350,000 bpd contribution from its allies, including Russia, delegates said.

West Texas Intermediate for January delivery gained $0.31 to $51.80/bbl on the New York Mercantile Exchange. Prices fell 2.7% to $51.49 on Thursday. Total volume traded was around 73% above the 100-day average.

Brent for February settlement added $0.80 to $60.86/bbl on London’s ICE Futures Europe exchange, after falling 2.4% on Thursday. The global benchmark crude traded at an $8.84 premium to WTI for the same month.

Russian President Vladimir Putin and Energy Minister Alexander Novak discussed cooperation within OPEC+ Thursday during several meetings, Putin’s spokesman Dmitry Peskov said. Although Russia had agreed to a cut in principle, the eventual size of their contribution remained undefined through this week’s talks in Vienna. In private conversations earlier in the week, OPEC delegates said that the kingdom had favored a Russian cut of about 300,000 bpd, but Moscow was seeking a smaller reduction of about 150,000.

Meanwhile, as OPEC met in Vienna, news broke that American overseas crude shipments rose to a record 3.2 MMbpd, turning the U.S. into a net exporter for the first time in 75 years.

Oil Market News

The Cboe/Nymex Oil Volatility Index increased 6.6% on Thursday. Canadian oil prices strengthened Thursday amid forecasts that mandated cuts risk draining inventories too quickly. Chevron raised its spending budget for the first time since 2014 even as crude prices plummet, doubling down on U.S. shale.